When the Happy Endings Ice Cream shop in London wanted to expand its successful ice cream business by building a new kitchen at a new site, it decided to reach out to its customers for help, rather than go to a bank to ask for a loan. Happy Endings hopes to raise £15,000 for the rent and kit-out of their new kitchen.
The crowdfunding campaign accepts ‘investments’ for as little as £10 – and in exchange for your ‘pledge’ to the campaign, Happy Endings will either give you an ice cream discount card, a t-shirt or stickers or a free ice-cream cake for a bigger donation/investment.
This is a type of crowdfunding that sits between GoFundMe, where people donate money to a cause or a person, and platforms like Seedrs, SeedInvest or StartEngine, where people invest bigger amounts of money and would normally expect to get shares in a business rather than products in exchange for their money.
Crowdfunding has been on the scene for a while now and has grown up as a real alternative to traditional forms of financing. Raising money online from ordinary people via a recognised platform makes financing more accessible as many small start-ups would struggle finding money outside their friends & family circle.
So how does it work in practice? If you’re planning to start a business from scratch and need capital as you may be building a costly prototype or hiring a couple of programmers and a marketing person, crowdfunding may be very effective. It can help you reach out and connect with many ordinary people, who may like your business idea and wish to support you. Often these early seed-investors feel very engaged with your business. Reaching out to them is like doing your first marketing campaign.
Any platform will, for small or big deals, first do a thorough due diligence of a proposed business and make sure all is in order. The platform will vet the business founders and the viability of the idea as well as how you plan to use the money raised. If your startup plans to sell equity (instead of pre-selling a product), it is important that a valuation (price) of the business is agreed beforehand.
How to set a valuation? For argument’s sake, say you want to sell 20% of your equity in return for a $50,000 investment, it means you - in agreement with your crowdfunding platform - set the value (price) of your business at $250,000.
The platform will then set a fixed amount of time to raise your funds. They will help you with the on-site presentation and ‘market’ your idea to the investors on the platform. Good ideas at the right valuation will often reach their goal before the deadline or raise much more.
If you are thinking of starting a business, have a good look at whether crowdfunding is for you. Look at the sizes of businesses on the platform already, the support the platform can give you and, last but not least, what the platform fees are.
Crowdfunding has created a great new marketplace away from the large banks or the bank of mom-and-pop, offering people who like to use their money differently to be part of exciting start-ups and help young entrepreneurs to realise their dreams. All the while with the possibility of making money too. Happy Endings may just cut it.
Further links
https://internationalbanker.com/finance/crowdfunding-one-of-the-decades-success-stories/
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